Friday, March 13, 2015

A friend wrote: “For the sake of the planet's future, we must
find a way to restrain our impulse to breed. A target population number
needs to be objectively determined and a finger kept on the scale so that
attrition finally reaches that number. Let's assume that the planet can
comfortably sustain 3 billion people (I think that number is too high).
That means we must lose 4 billion people in a relatively short time. If we get
to a fertility rate of 2.1 or replacement, the population still rises for a
time. The fertility rate has to be greatly curtailed until we reach the target
population before we allow it to return to the replacement rate. But attrition would
be sufficient to reduce the population; all we have to do is breed less.”

If that were that simple, China's population would have
stabilized after 1960 and dropped significantly after 1980. Indeed, world
population growth would now be a historical
curiosity.

Population growth is not just about fertility. It depends
upon the difference between the birth rate and the death rate. The problem,
from my friend’s perspective, is that, for the past 200 years, death rates have
consistently fallen faster than birth rates. As long as infant mortality
continues to fall and life expectancy continues to increase, so too will
population.

Worldwide, you have to get the fertility rate to less than
1.4 to stabilize population (given current trends in the death rate) and below
1.2 for it to fall any time soon. As the world’s population-bulge ages, in about
30 years or so, the death rate will rise and the fall in population will
accelerate. That is where Japan is now; its population has been stable for 15
years. After 25 years of birthrates below 1.5 (dropping as low as 1.1) and
already low infant mortality rates and high life expectancy, its population is
beginning to fall. I think that’s where we are going – many rich countries with
egalitarian income distributions are there already.

Nevertheless, in recent times, the only countries that have
actually lost population are those like the Russian Republic, where, for some
reason, both fertility and life expectancy declined and infant mortality
increased (I say for some reason in this case because in Russia these trends
started in the late 70s and continued through the 90s and, evidently, the
oughts’), or where there was a ton of outmigration (like Ireland in the mid-19th
Century).

What are the economic effects of a falling population? Any
answer I could give to this question would be mostly guesswork. Historically,
war, famine, and disease have been the drivers of population collapse. Their
effects have not been good for productivity /income growth/consumption /investment,
with the possible exception of the Black Death in the 14th Century.

The best model for the effects of a dramatic reduction in
the birthrate is, perhaps, Alvin Hansen's notion of secular stagnation.
I remain enough of a hydraulic Keynesian to believe that we know how to mitigate the shortfalls in
aggregate demand this would induce, but I have two big concerns. The recent
evidence in Europe and, to a lesser extent, here suggests that there might be
insufficient effective political demand for such policies. More seriously, I am
concerned that an aging population will become increasingly unwilling to
support or even actively oppose technological change and the replacement and
expansion of plant, equipment, and infrastructure needed to exploit
technological change sufficiently to allow high levels of productivity growth
(in part simply because of the social cost of supporting increasing numbers of
unproductive old people).

Of course, productivity growth is the sine qua non of
income/consumption growth. Which takes me to the environment. The evidence is that
environmental amenities are normal or superior goods; our demand for them
increases with increases in income and tends to fall with reduced income
growth. As is generally the case, richer is better, safer, healthier, and cleaner.
Supply is a little harder, but, generally speaking, the less costly things,
like environmental quality, are, the more of them people will want/supply,
which also depends upon productivity/income growth (and in a democracy, where
the preferences of the median voter are more or less decisive, the degree to
which income growth is shared).

Another acquaintance said: “I think humanity could live
sustainably on the earth, if our collective behavior and choices changed. I
believe we could change if we decided to, however right now most of us accept
the status quo. Basically, we seem OK with a model that promotes exploitation,
of each other and our natural world, in order to provide a few people with
great wealth—the basic change would be to an ‘all in this together’ model that
creates wealth as well as general prosperity.”

“What are the choices we should make:

—Transfer most wealth and resources currently devoted to war
into peacetime works, such as nutrition, education, housing, health care and
transportation.

“While I appreciate the barriers to making such changes, I
also believe our situation demands comprehensive change. I vacillate between
pessimism and optimism. Portland makes me believe big changes in a relatively
short period are feasible—the progressive city of today did not exist 50 years
ago, yet here it is now, and changes are gathering pace.”

OK. While I am skeptical of the claim that rich were the
main beneficiaries of the industrial revolution, these are not unreasonable
proposals. Take #1, transfer resources devoted to war and the preparation for
war into peacetime works. We are doing that; worldwide, military
expenditures are at their lowest level as a share of total output in over 100
years. Even, in the US, one must go back 75 years to see a lower share devoted
to the military.

#2. Americans invented confiscatory income and inheritance
taxes. Indeed, we still have one of the more progressive tax structures in
the developed world (transfers are another matter). Tax havens could be largely
eliminated by getting rid of income taxes on C corps, making them pass-through entities.
And, carbon taxes are a fine idea. It is altogether better to tax bad things
than good things like working and saving.

Playing with a few differential equations makes it pretty
clear that there is only one thing that will permit sustained consumption going
forward: endogenous technological development/deployment fast enough to offset
resource depletion and to avoid or mitigate environmental degradation;
otherwise no matter what you do, it all collapses eventually.

Of course, if endogenous technological
development/deployment is fast enough, sustained growth is also feasible.

My point is that one cannot
talk about economic dynamics meaningfully without thinking about the
environment and, of course, the reverse is also true. The corollary is that we
need to understand that our future is entirely hostage to the development and
deployment of productive technologies. Nearly every other issue is trumped

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